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1993 (4) TMI 63
Issues Involved:
1. Quashing of proceedings under Section 482 of the Code of Criminal Procedure.
2. Allegations of false claims for depreciation and installation allowances.
3. Application of inherent powers of the High Court under Section 482.
4. Interlocutory orders and their challengeability under Section 397(2) of the Code.
5. Precedents and their applicability to the present case.
Detailed Analysis:
1. Quashing of Proceedings under Section 482 of the Code of Criminal Procedure:
The petitioners sought to quash proceedings initiated based on a complaint filed by the Assistant Commissioner of Income-tax, alleging offences under Sections 276C(1), 277 read with Section 278B of the Income-tax Act. The complaint was related to the income-tax return filed for the assessment year 1985-86, where the petitioners allegedly made false claims for depreciation and installation allowances.
2. Allegations of False Claims for Depreciation and Installation Allowances:
The complaint alleged that the petitioners, a company and its managing directors, falsely claimed depreciation of Rs. 5,07,59,917 and installation allowances of Rs. 3,72,697 for a plant and machinery purportedly installed in the Padam Polyester Division. However, enquiries revealed that no such installation or production occurred during the relevant period. The assessment order dated March 28, 1988, confirmed these findings, and the company's appeal was dismissed by the Commissioner of Income-tax (Appeals). The complaint accused the petitioners of wilful attempts to evade tax by making false statements and entries in their accounts.
3. Application of Inherent Powers of the High Court under Section 482:
The petitioners contended that even if the allegations were taken as correct, no case of tax evasion was made out. The court examined precedents, including Madhu Limaye v. State of Maharashtra, AIR 1978 SC 47, which outlined principles for exercising inherent powers under Section 482. These principles include:
- The power should not be used if there is a specific provision in the Code for redress.
- It should be exercised sparingly to prevent abuse of process or to secure justice.
- It should not be used against an express bar of law.
4. Interlocutory Orders and Their Challengeability under Section 397(2) of the Code:
The court noted that the order of summoning by a Magistrate is an interlocutory order and cannot be challenged directly under Section 482 due to the bar imposed by Section 397(2). The petitioners had not challenged the summoning order before the Magistrate. The court referenced K. M. Mathew v. State of Kerala, AIR 1992 SC 2206, which held that an accused could request the Magistrate to recall or rescind a summoning order. If such a request is denied, the order can then be challenged under Section 482.
5. Precedents and Their Applicability to the Present Case:
The court reviewed several precedents, including:
- State of U. P. through C. B. I S. P. E. v. R. K. Srivastava, AIR 1989 SC 2222, where proceedings were quashed due to lack of wrongful intent.
- Madhavrao Jiwaji Rao Scindia v. Sambhajirao Chandrojirao Angre [1988] 1 SCC 692; AIR 1988 SC 709, which allowed quashing of proceedings in rare cases of oblique prosecution.
The court concluded that the present case involved serious allegations of false claims for tax benefits, and quashing the proceedings at this stage would be unjust. The petitioners should first seek redress before the Magistrate. Only if their request is declined can they challenge the order under Section 482.
Conclusion:
The petition was dismissed, with the court emphasizing that the petitioners should challenge the summoning order before the Magistrate first. The inherent powers under Section 482 could not be invoked directly against an interlocutory order without exhausting other remedies.
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1993 (4) TMI 62
Issues Involved: Determination of whether a loss from share transactions should be classified as speculation loss or business loss for an individual assessee for the assessment year 1981-82.
Summary:
The High Court of GAUHATI addressed the issue of classification of a loss resulting from share transactions for an individual assessee for the assessment year 1981-82. The original return showed a short-term capital loss, while the revised return classified it as a business loss. The assessing authority deemed the loss as speculative under section 43(5) of the Income-tax Act, 1961, and disallowed it as a business loss. Both the Appellate Assistant Commissioner of Income-tax and the Appellate Tribunal upheld this decision, leading to the reference to the High Court.
The Court examined the definition of "speculative transaction" under section 43(5) of the Act, emphasizing the conditions that must be met for a transaction to be considered speculative. The Court analyzed the particulars of the share transactions in question, noting the lack of evidence regarding actual delivery or transfer of shares. Despite the absence of concrete proof of delivery, the Court concluded that the transactions were settled without actual delivery, falling under the definition of speculative transactions as per the Act.
The Court highlighted the importance of providing evidence of actual delivery to support the classification of transactions, emphasizing the statutory requirement for such verification. Due to the failure to produce materials demonstrating actual delivery, the Court affirmed that the transactions were speculative in nature. Consequently, the Court ruled in favor of the Revenue, classifying the loss from share transactions as speculation loss rather than a business loss. The judgment was transmitted to the Appellate Tribunal without any cost implications.
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1993 (4) TMI 61
Issues:
1. Interpretation of section 80J of the Income-tax Act, 1961 regarding deduction for manufacturing or producing articles.
2. Determination of whether calendering of cloth constitutes manufacturing within the meaning of section 80J.
3. Application of legal precedents regarding the definition of "manufacture" in tax law.
Analysis:
Issue 1: The judgment concerns the interpretation of section 80J of the Income-tax Act, 1961, which allows for a deduction for industrial undertakings engaged in manufacturing or producing articles. The case involves a firm engaged in calendering cloth seeking relief under this section.
Issue 2: The assessee-firm claimed relief under section 80J for calendering cloth, arguing that the process rendered the cloth marketable. However, the Income-tax Officer denied the relief, stating that the firm was not engaged in manufacturing or producing any article. The Appellate Assistant Commissioner upheld this decision, but the Tribunal ruled in favor of the assessee, considering calendering as manufacturing. The High Court analyzed the nature of the calendering process and concluded that it did not result in a new and commercially different commodity, thus denying the relief under section 80J.
Issue 3: The judgment extensively references legal precedents to define "manufacture" in tax law. The court cited the Mafatlal case, emphasizing that mere finishing processes like calendering may not amount to manufacturing if they do not bring about a lasting change in the nature of the product. Additionally, the court referred to various Supreme Court and High Court judgments to establish that true manufacturing involves a complete transformation resulting in a new and commercially different article. The judges applied these principles to the present case, determining that calendering did not meet the threshold for claiming relief under section 80J.
In conclusion, the High Court ruled against the assessee, holding that the calendering process did not amount to manufacturing under section 80J of the Income-tax Act, 1961. The judgment underscores the requirement for a substantial transformation to qualify as manufacturing for tax deduction purposes, as established by legal precedents in similar cases.
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1993 (4) TMI 60
Issues:
- Whether the High Court has the power to grant a stay against the realization of tax in an application made by the assessee under section 256(2) of the Income-tax Act, 1961.
Analysis:
The judgment in question revolves around the issue of whether the High Court possesses the authority to grant a stay against the realization of tax when an assessee files an application under section 256(2) of the Income-tax Act, 1961. The controversy originated from the assessee's application under section 256(2) seeking a direction for the Tribunal to refer certain questions of law to the High Court for opinion. The application was admitted, and the Income-tax Officer's assessment order was stayed, leading the Revenue to seek vacation of this order. The fundamental query is whether the High Court's jurisdiction under section 256 can be categorized as appellate, revisional, or supervisory, determining its power to grant a stay during the pendency of the application.
The court delves into the nature of the jurisdiction conferred by section 256 of the Income-tax Act. The provision allows an assessee or the Commissioner to request the Appellate Tribunal to refer questions of law arising from the Tribunal's order to the High Court for opinion. It is observed that the High Court's jurisdiction under section 256 is unique, advisory, and limited in scope. The court's role is restricted to answering the referred questions of law and determining if a legal issue arises in the case. The High Court does not possess appellate, revisional, or supervisory powers over the Tribunal's decision, nor can it correct factual or legal errors in the Tribunal's judgment.
The judgment cites the Supreme Court decision in CIT v. Scindia Steam Navigation Co. Ltd., emphasizing that the High Court's role in a reference under section 256 is distinct from its civil court jurisdiction and is purely advisory. The court's jurisdiction is circumscribed to addressing the referred legal questions and providing opinions on them. While the High Court retains its inherent jurisdiction and judicial capacity during a section 256 reference, it is clarified that this inherent power is limited to procedural matters related to the reference and cannot extend to granting stays against the enforcement of orders by statutory forums.
Referring to the Supreme Court ruling in CIT v. Bansi Dhar and Sons, the judgment underscores the separation of the High Court's jurisdiction under section 256 from inherent or incidental powers. It is reiterated that the High Court's jurisdiction under section 256 is specific and conferred by the Income-tax Acts for obtaining the court's opinion on legal questions. The court is not empowered to grant stays or interim injunctions while dealing with a reference under section 256, as such powers fall within the domain of appellate authorities. Consequently, the High Court, in this case, is deemed incompetent to grant a stay, leading to the vacation of the stay order dated November 24, 1992, and the disposal of the civil miscellaneous petition.
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1993 (4) TMI 59
Issues Involved:
1. Applicability of Rule 8(1) of the Income-tax Rules, 1962, to profits under Section 41(2) of the Income-tax Act, 1961.
2. Correct interpretation and computation of income under Section 41(2) of the Income-tax Act in relation to the sale of a tea garden.
Issue-Wise Detailed Analysis:
1. Applicability of Rule 8(1) of the Income-tax Rules, 1962, to profits under Section 41(2) of the Income-tax Act, 1961:
The primary issue in this case revolves around whether Rule 8(1) of the Income-tax Rules, 1962, applies to the profits computed under Section 41(2) of the Income-tax Act, 1961, specifically in the context of the sale of a tea garden. Rule 8(1) stipulates that income from the sale of tea grown and manufactured by the seller in India should be computed as business income, with 40% of such income being liable to tax under the Act and the remaining 60% being considered agricultural income.
The Tribunal accepted the assessee's contention that only 40% of the profit under Section 41(2) should be taxed, relying on the Supreme Court's decision in CIT v. Nandlal Bhandari Mills Ltd. and Tata Tea Ltd. v. State of West Bengal. The Tribunal held that the provisions of Rule 8(1) were applicable to the profits arising under Section 41(2) because only 40% of the depreciation was allowed in past assessments. The Supreme Court in Tata Tea Ltd. had clarified that Rule 8(1) is not merely a rule of apportionment but is incorporated into the definition of "agricultural income" under the Act.
2. Correct interpretation and computation of income under Section 41(2) of the Income-tax Act in relation to the sale of a tea garden:
The Assessing Officer initially computed the entire profit of Rs. 24,41,350 under Section 41(2) as taxable income, rejecting the assessee's claim that only 40% should be taxed. The Appellate Assistant Commissioner upheld this view, albeit with a minor adjustment. The Tribunal, however, reversed this decision, emphasizing that only 40% of the profit should be considered taxable under the Act.
The High Court agreed with the Tribunal's interpretation. Section 41(2) is a deeming provision that treats a capital receipt as a business receipt. The Explanation to Section 41(2) extends this fiction to situations where the business is no longer in existence. The Court noted that the excess over the written down value realized from the sale of assets used in the tea business should be treated as income from the tea business, thus attracting the provisions of Rule 8(1).
The Court highlighted that in past assessments, only 40% of the depreciation was allowed, and therefore, only 40% of the profit under Section 41(2) should be taxed. The Court also distinguished this case from CIT v. Maharashtra Sugar Mills Ltd., noting that the latter dealt with a different context involving sugar manufacturing and did not involve Rule 8(1).
The Court concluded that the entire profit cannot be taxed under Section 41(2) since only 40% of the depreciation was allowed in the past. The statutory fiction under Section 41(2) must be given full effect, and the income must be computed with reference to Rule 8 of the Rules.
Conclusion:
The High Court answered the question in the affirmative, in favor of the assessee, holding that only 40% of the profit under Section 41(2) should be brought to tax, consistent with Rule 8(1) of the Income-tax Rules, 1962. The Court emphasized the indivisibility of the business of growing and manufacturing tea and the necessity of apportioning the income as prescribed by Rule 8(1). There was no order as to costs.
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1993 (4) TMI 58
Issues:
1. Admission of additional grounds related to section 80J tax relief and capital computation.
2. Depreciation on know-how, fans, construction work-in-progress, and advances against capital purchases.
3. Interpretation of 'capital employed in the industrial undertaking' under section 80J.
Analysis:
1. Admission of Additional Grounds:
The High Court declined to answer the questions raised by the assessee regarding the admission of additional grounds related to section 80J tax relief and capital computation. The counsel for the assessee acknowledged that the issues raised had become academic due to a Supreme Court decision. The court, therefore, returned these questions unanswered.
2. Depreciation Issues:
a. Know-how as Plant: The court ruled in favor of the assessee, following the decision in Scientific Engineering House P. Ltd. v. CIT, allowing depreciation on know-how received under a collaboration agreement.
b. Depreciation on Fans: The Tribunal had classified fans as "plant," entitling the assessee to claim depreciation on them. The court upheld this decision in favor of the assessee.
c. Inclusion of Construction Work-in-Progress: The court referred to CIT v. Alcock Ashdown and Co. Ltd., ruling in favor of the assessee that the sum representing construction work-in-progress and advances against capital purchases should be included as assets for capital computation under rule 19A.
3. Interpretation of 'Capital Employed':
The court addressed the interpretation of 'capital employed in the industrial undertaking' under section 80J. Referring to the decision in Lohia Machines Ltd. v. Union of India, the court ruled in favor of the Revenue that the total value of assets should not deduct borrowed moneys and debts due by the assessee. The question was answered in favor of the Revenue.
In conclusion, the High Court's judgment resolved various issues related to section 80J tax relief, depreciation claims, and the interpretation of 'capital employed' under the Income-tax Act, 1961, providing clarity on each aspect based on relevant legal precedents.
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1993 (4) TMI 57
Issues involved:
The judgment involves three main issues:
1. Computation of capital gains for a non-resident selling shares of an Indian company.
2. Determination of the cost of shares for deduction purposes.
3. Consideration of additional grounds raised by the appellant at the appellate stage.
Issue 1 - Computation of Capital Gains:
The case involved the sale of shares by a non-resident in an Indian company, with the main dispute being the method of computing capital gains. The non-resident contended that the gains should be first calculated in pounds and then converted to Indian rupees due to maintaining accounts in the U.K. However, the court held that since the transactions were in Indian rupees and the income arose in India, converting to foreign currency for computation was not necessary. The court cited a similar case where income expressed in Indian rupees did not require conversion, emphasizing that conversion is only relevant for foreign currency transactions.
Issue 2 - Determination of Cost of Shares:
The court examined whether the cost of shares for deduction should be based on the historical cost at acquisition or a subsequent point based on exchange rates. The Income-tax Officer calculated the capital gain based on the actual sale proceeds and deducted the cost of shares at acquisition. The court found that since both the purchase and sale prices were in Indian rupees, there was no need to convert to foreign currency for determining capital gains. The court ruled in favor of the Revenue on this issue.
Issue 3 - Additional Grounds at Appellate Stage:
Regarding the consideration of additional grounds raised by the appellant at the appellate stage, the court referred to a Supreme Court decision allowing the Appellate Assistant Commissioner to consider such grounds. The court ruled in favor of the assessee on this issue, stating that the Appellate Assistant Commissioner had the power to review additional grounds raised at the appellate stage.
In conclusion, the court answered the first and second questions in favor of the Revenue and against the assessee, while ruling in favor of the assessee on the third question. The judgment clarified that for transactions expressed in Indian rupees, conversion to foreign currency for computation is not required, emphasizing the relevance of the currency in which the transactions are conducted for determining income.
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1993 (4) TMI 56
Issues Involved:
1. Validity of the rescission of the agreement for sale during the pendency of the earlier writ petition.
2. Inclusion of the loft area in the valuation of the property.
Detailed Analysis:
Issue 1: Validity of the Rescission of the Agreement for Sale
The petitioner contended that during the pendency of the earlier writ petition, an agreement dated August 11, 1992, rescinded the original agreement for sale dated December 20, 1991. The petitioner argued that this rescission rendered the original agreement and the statement filed in Form No. 37-1 on December 31, 1991, invalid for consideration by the appropriate authority.
The court rejected this contention, emphasizing that the Supreme Court's judgment in C. B. Gautam v. Union of India [1993] 199 ITR 530 did not quash the entire proceedings emanating from the statement in Form No. 37-1. Instead, it only set aside the order under section 269UD(1) due to the lack of adequate opportunity given to the assessee. The Supreme Court directed that the statement in Form No. 37-1 be treated as filed on the date of the judgment to overcome the limitation period prescribed in section 269UD(1).
The court noted that the Supreme Court did not direct the parties to file fresh statements nor provided an option to file or not file the same. This was to prevent vendors from defeating acquisition proceedings by exploiting the Supreme Court's decision. The court also highlighted that under section 269UK of the Act, there are specific restrictions on altering agreements for the transfer of immovable property once a statement has been filed under section 269UC. The petitioner did not fall under any exceptions to this rule.
Therefore, the court found no merit in the petitioner's first submission, stating that the rescission of the agreement during the pendency of the writ petition was contrary to the judgment of the Supreme Court and the scheme of the Act.
Issue 2: Inclusion of the Loft Area in the Valuation
The petitioner argued that the loft area was not part of the property intended to be sold and that the authorities erroneously included its value in the market valuation of the property.
The court examined the order of the appropriate authority, which discussed this matter in detail. The appropriate authority concluded that the loft area was indeed part of the shop premises, which was the subject of the sale agreement. The authority noted that the transfer of five shares resulted in the transferor losing the right to occupy any part of the premises, including the loft. The court found that the appropriate authority had carefully considered all relevant facts and concluded that the loft area was an integral part of shop No. 2A.
The court observed that the petitioner had not raised any objections regarding the inclusion of the loft area before the initial order under section 269UD(1) on February 26, 1992. The objection was only raised after the order was passed. The court found that the appropriate authority had applied its mind properly to all relevant facts and therefore, there was no justification to interfere with its conclusion.
Conclusion:
The court dismissed the writ petition at the admission stage, finding no merit in either of the petitioner's submissions. The court directed that the possession of the shop premises shall not be taken over for six weeks, provided the petitioner does not part with possession or create any third-party rights. The date of payment of consideration to the petitioner was extended to two weeks after the expiry of this six-week period. No order as to costs was made.
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1993 (4) TMI 55
Validity of order passed by Commissioner u/s 263 - erroneous and prejudicial to the Revenue - deduction of "plant re-lay-out expenses." - nature of the expenditure incurred - merger of two existing plants to enhance production efficiency - "erroneous", "erroneous assessment" and "erroneous judgment".
HELD THAT:- It is well-settled that when exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the court it would be open to the courts to examine whether the relevant objective factors were available from the records called for and examined by such authority.
In the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the Income-tax Officer to re-examine the matter. That, in our opinion, is not permissible. Further inquiry and/or fresh determination can be directed by the Commissioner only after coming to the conclusion that the earlier finding of the Income-tax Officer was erroneous and prejudicial to the interests of the Revenue. Without doing so, he does not get the power to set aside the assessment. In the instant case, the Commissioner did so and it is for that reason that the Tribunal did not approve his action and set aside his order. We do not find any infirmity in the above conclusion of the Tribunal.
Thus, we answer the question referred to us in the affirmative, that is, in favour of the assessee and against the Revenue.
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1993 (4) TMI 54
Issues Involved:
1. Justification of penalty cancellation under section 271(1)(c) of the Income-tax Act, 1961, for the assessment years 1971-72 and 1972-73.
2. Interpretation and application of the Explanation to section 271(1)(c) of the Income-tax Act, 1961.
3. Burden of proof and its discharge in penalty proceedings under section 271(1)(c).
Detailed Analysis:
1. Justification of Penalty Cancellation under Section 271(1)(c) for the Assessment Years 1971-72 and 1972-73:
The core issue was whether the Tribunal was justified in canceling the penalties of Rs. 65,870 and Rs. 76,063 imposed by the Inspecting Assistant Commissioner under section 271(1)(c) for the assessment years 1971-72 and 1972-73, respectively. The penalties were imposed due to the assessee's alleged concealment of income, which was purportedly converted into race winnings. The Tribunal found the assessee's explanation to be false but still canceled the penalties, reasoning that falsity alone was insufficient to justify penalty imposition.
2. Interpretation and Application of the Explanation to Section 271(1)(c):
The Explanation to section 271(1)(c) was pivotal in this case. It states that if the returned income is less than 80% of the assessed income, the assessee is presumed to have concealed income unless proven otherwise. The Tribunal's interpretation that something more than the falsity of the explanation was necessary to justify the penalty was found to be incorrect. The court emphasized that once the explanation is found false, the presumption of concealment stands unless rebutted by relevant and cogent material.
3. Burden of Proof and Its Discharge in Penalty Proceedings:
The court clarified that the burden of proof shifts to the assessee under the Explanation to section 271(1)(c) when the returned income is significantly less than the assessed income. The Tribunal's view that the onus on the assessee was very light was rejected. The court held that the presumption of concealment can only be rebutted by substantive and cogent evidence, which the assessee failed to provide. The Tribunal's requirement for additional substantive positive evidence from the Revenue to justify the penalty was deemed unnecessary and contrary to the statutory provisions.
Conclusion:
The court concluded that the Tribunal erred in canceling the penalties imposed by the Inspecting Assistant Commissioner. The Tribunal's interpretation of the Explanation to section 271(1)(c) was found to be flawed. The court held that the penalties were justified based on the false explanation provided by the assessee and the failure to rebut the presumption of concealment. The question referred to the court was answered in the negative, in favor of the Revenue and against the assessee. No order as to costs was made.
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1993 (4) TMI 53
Issues Involved:
1. Validity of service of notice u/s 143(2) of the Income-tax Act, 1961.
2. Authority of the person accepting the notice on behalf of the assessee.
3. Compliance with procedural requirements for serving notice.
Summary:
1. Validity of Service of Notice u/s 143(2):
The court examined whether the service of notice u/s 143(2) was valid. The notice was served on Som Nath, who was neither a family member nor a duly authorized agent of the assessee. The court emphasized that notice must be served in accordance with section 282 of the Act, which aligns with the procedures under the Code of Civil Procedure.
2. Authority of the Person Accepting the Notice:
The court scrutinized whether Som Nath had the authority to accept the notice on behalf of the assessee. It was established that Som Nath had previously accepted notices for the assessee but was not a duly authorized agent as per Order III, rule 6, Civil Procedure Code. The court cited various precedents, including C. N. Nataraj v. ITO and Addl. CIT v. Prem Kumar Rastogi, to support the requirement of a written instrument for authorization.
3. Compliance with Procedural Requirements:
The court detailed the procedural requirements for serving notice, including personal service, service by post, and substituted service under Order V, Civil Procedure Code. It was found that the notice served on Som Nath did not comply with these requirements. The court highlighted that serious consequences follow from such notices, necessitating strict adherence to prescribed procedures.
Conclusion:
The court concluded that the notice served on Som Nath was invalid as he was not a duly authorized agent. Consequently, the assessment order based on this notice was also invalid. The reference was answered in the negative, indicating that the service of notice u/s 143(2) was not valid.
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1993 (4) TMI 52
Issues:
1. Whether the Tribunal was justified in deciding the source of money invested in the purchase of bags of potatoes.
2. Whether the decision of the Tribunal is against the provisions of the Voluntary Disclosure of Income and Wealth Act.
Analysis:
Issue 1:
The case involved an unregistered firm's assessment for the year 1971-72, where the Income-tax Officer added undisclosed income for the purchase of bags of potatoes. The assessee claimed the amount was part of a voluntary disclosure made under the Disclosure Act for a previous year. The Commissioner of Income tax (Appeals) and the Appellate Tribunal accepted this claim based on a certificate issued under the Disclosure Act. However, the High Court held that the connecting link between the disclosed income and the undisclosed transaction was not established by the assessee. The Court emphasized the need for evidence to prove the nexus, stating that the finding in favor of the assessee was unsupported. Consequently, the Court ruled in favor of the Revenue, concluding that the investment in the potatoes was not from the disclosed amount.
Issue 2:
Regarding the second part of the question, the Court noted that the assessee did not seek relief under section 8 of the Disclosure Act. As a result, the bar under section 9 of the Act was deemed inapplicable. Given the Court's ruling on the first issue, it determined that the second part of the question did not require consideration. Therefore, the Court did not delve into the potential violation of section 9 of the Disclosure Act. The judgment was concluded with directions for the transmission of the judgment to the Appellate Tribunal, Gauhati, without any order as to costs.
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1993 (4) TMI 51
Issues:
- Stay of recovery of assessed tax by Income-tax Officer
- Opportunity of hearing not granted before passing the order
- Non-speaking order passed without application of mind
- Setting aside the order and directing a fresh decision with an opportunity of hearing
Analysis:
The petitioner was assessed to income tax for the year 1990-91 and filed an appeal against the assessment order, seeking a stay on the recovery of the assessed tax until the appeal was disposed of. The Income-tax Officer, Ward No. 3, passed an order rejecting the application for stay of demand, stating that the demand had fallen due and the application was not made within the stipulated period. The petitioner then approached the Deputy Commissioner of Income tax, who directed the petitioner to contact the Income-tax Officer. The petitioner filed a writ petition challenging the order of the Income-tax Officer, alleging that no opportunity of hearing was granted before passing the order, and the order was a non-speaking one passed without proper application of mind.
The court observed that no opportunity of hearing was indeed given to the petitioner before passing the impugned order, and the order lacked reasons for rejecting the application. The court held that the order was non-speaking and required the Income-tax Officer to pass a speaking order after affording an opportunity to the petitioner. Citing a relevant authority, the court emphasized the necessity of providing reasons and granting a hearing before passing such orders.
Consequently, the court allowed the writ petition, setting aside the order dated November 20, 1992. The Income-tax Officer, Ward No. 3, was directed to reconsider the matter, provide an opportunity of hearing to the petitioner, and pass a speaking order. The deadline for the decision was set, and the petitioner was instructed to appear before the Income-tax Officer for further directions. The recovery of the assessed tax was stayed until the matter was decided. No costs were awarded in the case.
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1993 (4) TMI 50
Issues:
1. Quashing of Criminal Complaint under sections 276C and 277 of the Income-tax Act, 1961.
2. Application for dismissal of the complaint and stay of proceedings based on orders from the Income-tax Settlement Commission.
3. Interpretation of the powers of the Settlement Commission regarding prosecution and stay of criminal proceedings.
4. Comparison with previous judgments regarding the effect of Settlement Commission orders on ongoing criminal proceedings.
Analysis:
The case involved a petition for quashing a criminal complaint under sections 276C and 277 of the Income-tax Act, 1961. The complaint alleged that the petitioner-firm had concealed income while filing its return for the assessment year 1982-83. The petitioners had filed an application before the Income-tax Settlement Commission, which allowed proceedings for certain assessment years but did not specifically direct a stay on criminal proceedings related to the complaint in question.
The petitioners argued that once the Settlement Commission allowed the application to proceed for certain assessment years, all proceedings, including prosecution, should be stayed. They relied on the powers of the Settlement Commission under Chapter XIX-A, "Settlement of cases," which includes the authority to grant immunity from prosecution and penalty for offenses under various acts. However, the court noted that at the time the complaint was filed, the Settlement Commission had not decided on proceeding with the application, and thus, there was no bar on the Commissioner ordering prosecution.
Referring to previous judgments, the court highlighted that the mere filing of an application for settlement does not automatically stay other proceedings unless specifically ordered by the Settlement Commission. The court distinguished a previous case where the Commission had ordered the application to proceed before the criminal complaint was filed, leading to a different outcome. In this case, the court concluded that the Settlement Commission's allowance of the application did not prevent the prosecution already instituted under the Commissioner's orders.
Ultimately, the court dismissed the petition for quashing the complaint and the orders of the Chief Judicial Magistrate, emphasizing that the Settlement Commission's decision to allow the application did not bar the ongoing prosecution. The judgment reaffirmed that without a specific stay order from the Commission, criminal proceedings could continue independently of the settlement process.
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1993 (4) TMI 49
Issues:
Interpretation of whether a sum represented trading receipts and should be included in total income for the assessment year 1972-73.
Analysis:
The judgment involves a reference under section 256(2) of the Income-tax Act, 1961 to determine if a sum of Rs. 1,50,993, representing trading receipts, should be included in the total income for the assessment year 1972-73. The assessee dealt in Kirloskar and Cummins products, where goods were despatched from manufacturers in Bombay and Poona to Bihar, with Central Sales Tax (C. S. T.) included. The assessee reimbursed itself by charging C. S. T. from customers during a second sale, but credited this amount to an "exempted sales tax account" instead of the sales account. The Income-tax Officer and Appellate Assistant Commissioner treated this amount as a trading receipt, while the Tribunal held that the liability towards C. S. T. continues until exemption is accepted by the sales tax authority based on statutory declarations.
The judgment delves into the provisions of the Central Sales Tax Act, emphasizing that liability for C. S. T. arises once in the hands of the first seller during inter-State trade. Exemption is granted to subsequent sellers upon fulfilling statutory formalities, with no discretion for authorities to deny exemption if formalities are met. The judgment cites precedents like Chowringhee Sales Bureau P. Ltd. v. CIT and Punjab Distilling Industries Ltd. v. CIT to establish that the true nature of a receipt determines its treatment as a trading receipt, irrespective of how it is recorded in account books.
The judgment distinguishes the case at hand from CIT v. Hindustan Housing and Land Development Trust Ltd., asserting that the principles laid down in Chowringhee Sales Bureau P. Ltd.'s case are directly relevant. It concludes that the sum of Rs. 1,50,993 represented trading receipts for the assessee during the assessment year and should be included in the total income. The judgment is agreed upon by both judges, with directions to send a copy to the Income-tax Appellate Tribunal, Patna Bench, for necessary action under section 260 of the Act.
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1993 (4) TMI 48
Issues involved:
The judgment addresses two questions referred by the Appellate Tribunal under section 256(1) of the Income-tax Act, 1961 for the periods 1974-75, 1975-76, and 1976-77.
1. Whether the Tribunal was justified in confirming the deletion of Rs. 85,000 as unexplained cash credit in the assessee's total income.
2. Whether the Tribunal was justified in confirming the deletion of Rs. 6,000 for each of the two years as interest on cash credits.
Issue 1: Unexplained Cash Credit (Rs. 85,000):
The assessee, a trading Hindu undivided family, borrowed Rs. 85,000 from a creditor. The Income-tax Officer doubted the genuineness of the borrowing due to lack of conclusive evidence. The Commissioner (Appeals) later held that the entries represented genuine borrowings and set aside the Income-tax Officer's decision. The Appellate Tribunal upheld this decision, emphasizing that the burden of proof lies on the assessee to demonstrate the genuineness of entries. The Tribunal's conclusion was deemed justifiable based on the evidence presented.
Issue 2: Disallowance of Interest (Rs. 6,000):
For two subsequent years, the assessee's accounts showed payments of Rs. 6,000 per year as interest to the same creditor. The Income-tax Officer disallowed these payments as interest, suspecting their authenticity. However, the Commissioner (Appeals) disagreed and considered the entries as genuine borrowings. The Appellate Tribunal, concurring with the Commissioner's decision, upheld the deletion of the disallowed interest amount. The Tribunal emphasized that the burden of proof shifts to the Revenue once the assessee provides prima facie evidence, and in this case, the evidence presented was deemed satisfactory.
Conclusion:
The High Court affirmed the decisions of the Appellate Tribunal in favor of the assessee and against the Revenue regarding both the unexplained cash credit and the disallowed interest. The Court highlighted that the Tribunal's conclusions were supported by the evidence and circumstances presented, emphasizing the importance of the burden of proof in such cases.
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1993 (4) TMI 47
Issues:
1. Interpretation of the timing of dividend declaration for tax purposes under section 104 of the Income-tax Act, 1961.
2. Determination of whether the declaration of dividend by the board of directors or the annual general meeting is considered the official declaration for tax assessment.
Analysis:
The case involved a dispute regarding the assessment year 1977-78 concerning the timing of dividend declaration by a company. The board of directors resolved on December 12, 1977, to declare a dividend for the years 1969 to 1971, which was approved at the annual general meeting on July 22, 1978. The Income-tax Officer contended that the actual declaration occurred in July 1978, beyond the 12-month period from the previous year's end, invoking section 104(1) for tax assessment. The Commissioner of Income-tax disagreed, deeming the December 1977 resolution as the declaration. The Tribunal, however, upheld the Income-tax Officer's decision, leading to the reference to the High Court.
The central issue revolved around the interpretation of when a dividend can be considered distributed for tax purposes under section 104(1) of the Income-tax Act. The court referred to the Supreme Court's ruling in Kesoram Industries and Cotton Mills Ltd. v. CWT, emphasizing that directors can recommend dividends, but the general body must approve the declaration. The court analyzed the company law regulations on interim dividends and noted that the board's decision in this case was not labeled as interim, but rather a final dividend, approved by the general body. Citing J. Dalmia v. CIT, the court highlighted that a resolution by directors for interim dividend does not create an enforceable obligation until payment, which can be rescinded. Applying these principles, the court concluded that the dividend was officially declared at the annual general meeting in July 1978, not in December 1977 as contended by the assessee.
In light of the above analysis, the court affirmed the Tribunal's decision that the board of directors' resolution was a proposal, and the actual declaration occurred at the annual general meeting. Consequently, the court answered the referred questions in favor of the Revenue and against the assessee. The judgment was signed by the Registrar and sealed for transmission to the Appellate Tribunal, with no costs directed.
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1993 (4) TMI 46
Issues Involved:
1. Admissibility of additional grounds before the Income-tax Appellate Tribunal (ITAT).
2. Legality of capital gains tax levy for the assessment year 1970-71.
3. Taxability of interest received on enhanced compensation for the assessment year 1970-71.
Summary:
1. Admissibility of Additional Grounds:
The primary issue was whether the ITAT could permit the assessee to raise an additional ground regarding the levy of capital gains tax on a sum of Rs. 1,02,797, which was not disputed before the lower authorities. The court noted conflicting views among different High Courts and previous decisions of this court. The court referred to the Supreme Court's decisions in Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232 (SC), CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710 (SC), and CIT v. S. Nelliappan [1967] 66 ITR 722 (SC), emphasizing that the Tribunal's jurisdiction is restricted to the subject-matter of the appeal. The court concluded that the Tribunal has no jurisdiction to entertain new grounds unrelated to the subject-matter of the appeal before the Appellate Assistant Commissioner. The court held that the Tribunal could not allow the assessee to dispute new items or entertain new claims for deduction for the first time.
2. Legality of Capital Gains Tax Levy:
The second issue was whether the levy of capital gains tax on the amount of Rs. 1,02,797 for the assessment year 1970-71 was legal and valid. The court noted that the Tribunal had held that the capital gains were not assessable to tax for the year 1970-71 based on the decision of this court in S. Appala Narasamma v. CIT [1987] 168 ITR 17. However, given the court's conclusion on the first issue, it declined to answer this question, stating that the Tribunal could not have gone into the question of capital gains tax if it had no jurisdiction to entertain the additional ground.
3. Taxability of Interest on Enhanced Compensation:
The third issue was whether the entirety of the interest of Rs. 72,026 received on the enhanced compensation was assessable for the assessment year 1970-71. The Division Bench had already answered this question in favor of the assessee, following the decision in CIT v. Smt. Sankari Manickyamma [1976] 105 ITR 172 (AP), holding that the interest should be spread over the period from the date of possession to the date of payment. The Full Bench reaffirmed this opinion, answering the question in the negative against the Revenue and in favor of the assessee.
Conclusion:
The court's comprehensive analysis led to the conclusion that the ITAT cannot entertain new grounds unrelated to the subject-matter of the appeal before the Appellate Assistant Commissioner, thereby answering the first question in the negative. Consequently, the second question was not addressed. The third question was answered in favor of the assessee, reaffirming the Division Bench's decision.
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1993 (4) TMI 45
Issues:
1. Determination of the share of Hindu undivided family property passing on the death of the deceased.
2. Consideration of notional partition under section 39(1) of the Estate Duty Act for the deceased sole surviving coparcener.
3. Assessment of whether the entire Hindu undivided family property passed on the date of death of the deceased.
Analysis:
Issue 1:
The case involved the claim by the accountable person, the wife of the deceased sole surviving coparcener, regarding the share of the property passing on his death. The Tribunal upheld the claim that only half of the share in the property passed, contrary to the decisions of the Assistant Controller and the Appellate Controller.
Issue 2:
The discussion revolved around section 39(1) of the Estate Duty Act, which deals with the valuation of interest in coparcenary property ceasing on death. The claim was based on the notional partition immediately before the death of the deceased, invoking section 39(1) to determine the share that would have been allotted to him in the ancestral properties.
Issue 3:
The judgment delved into the legal principles governing ancestral properties and partitions in Hindu law. It emphasized that in cases where the family consists of the sole surviving coparcener and his wife, no partition is permissible between them for ancestral properties. The court cited precedents to establish that on the death of the sole surviving coparcener, the entire interest in the Hindu undivided family property passes to his heir.
The court referred to legal texts and previous judgments to establish that ancestral properties can only be partitioned between two surviving coparceners, highlighting that the wife of the deceased sole surviving coparcener cannot claim a share in such properties. The judgment answered the questions raised in the negative and affirmative, favoring the Department's stance on the passing of the entire interest in the Hindu undivided family property to the deceased's heir. The judgment concluded without any order as to costs and directed the transmission of the judgment to the Income-tax Appellate Tribunal for further action.
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1993 (4) TMI 44
Issues Involved:
1. Determination of the cost of acquisition of shares for the Hindu undivided family (HUF) when shares are thrown into the common stock by a coparcener.
2. Applicability of Section 49(1) of the Income-tax Act, 1961.
3. Interpretation of the doctrine of throwing into the common stock under Hindu law.
Issue-wise Detailed Analysis:
1. Determination of the Cost of Acquisition of Shares:
The primary issue in this case was whether the Tribunal was justified in determining the cost of the shares at the market rate as on December 31, 1969, or if it should be taken as nil. The assessee, a Hindu undivided family, had not shown any income by way of capital gains in its return of income after selling the shares. The Income-tax Officer computed the capital gains by taking the cost of the shares to be the same as the original acquisition cost by Ashok Kumar Jalan, i.e., Rs. 1.76 per share, and spread this cost over the entire holding, resulting in a cost of 88 paise per share for the HUF. The Appellate Assistant Commissioner upheld this view, considering the throwing of shares into the common stock as a gift under Section 49(1) of the Act. However, the Tribunal, relying on the Supreme Court's decision in Goli Eswariah v. CGT, held that this act did not amount to a gift and thus Section 49(1) was not applicable. The Tribunal then determined the cost based on the market value of the shares as of December 31, 1969.
2. Applicability of Section 49(1) of the Income-tax Act, 1961:
Section 49(1) deals with the cost of acquisition of capital assets in certain transactions where the assessee acquires property without incurring any cost. The Tribunal initially held that this section was not applicable because the throwing of shares into the common stock did not constitute a gift. The High Court examined whether any fiction created by the Legislature under Section 49(1) could apply. It was noted that Clause (iv) of Section 49(1), inserted by the Taxation Laws (Amendment) Act, 1975, applied only to cases where a coparcener threw his property into the common stock after December 31, 1969. Since the shares in question were thrown into the common stock on December 31, 1969, this clause was not applicable. The court also determined that the other clauses of Section 49(1) did not apply, as they dealt with partition, gifts, wills, and succession, which were not relevant to the present case.
3. Interpretation of the Doctrine of Throwing into the Common Stock:
The court referred to the Supreme Court's decision in Goli Eswariah v. CGT, which clarified that throwing separate property into the common stock of a Hindu undivided family is a unilateral act that does not constitute a gift under the Transfer of Property Act. This act of blending separate property with coparcenary property does not involve any consideration and thus does not incur any cost to the family. Consequently, the cost of such an asset to the HUF should be considered nil. The court reviewed various High Court decisions, including those from Delhi, Madras, Gujarat, and Bombay, which had differing views on this issue. Ultimately, the court agreed with the Bombay High Court's reasoning in CIT v. Trikamlal Maneklal (HUF), which held that the cost of acquisition should be nil if the actual cost of acquisition is nil.
Conclusion:
The High Court concluded that the Tribunal was not justified in determining the cost of shares at the market rate on December 31, 1969, and it should have taken the cost as nil. The court emphasized that the throwing of shares into the common stock did not fall under any of the specific transactions listed in Section 49(1) of the Income-tax Act. The judgment was delivered with no costs, and it was noted that the assessee could make further submissions at the stage of passing the order under Section 260 of the Act.
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